The Code on Wages 2019 is one of India’s four new labour codes that consolidates and replaces four earlier wage-related laws—the Minimum Wages Act, Payment of Wages Act, Payment of Bonus Act, and Equal Remuneration Act. It provides a unified legal framework for minimum wages, payment of wages, equal remuneration, and bonus entitlements across all sectors. The Code standardises key definitions, introduces a national floor wage, ensures uniform overtime rates, and simplifies compliance for employers while offering clearer and broader wage protection for workers.

Table of Contents

1. Introduction
2. Laws That Are Now Replaced by the Code
3. Why Was This Code Needed?
4. Detailed Overview of the Code
5. Some Important Facts and Numbers of the Code on Wages, 2019
6. Practical Impact in Day-to-Day Operations

1. Introduction

India’s wage framework has historically evolved through a patchwork of separate laws, each created at different times to address specific economic and labour conditions. Over the years, this resulted in a system where wage regulation was scattered across multiple instruments, each carrying its own definitions, thresholds, coverage rules and compliance mechanisms. As industries diversified and employment structures changed, this fragmented framework became increasingly difficult to administer. Employers often found themselves navigating more than one set of rules to determine how wages should be calculated, when they should be paid, and what entitlements applied in different situations. Employees, on the other hand, faced uncertainty in understanding their rights, especially when the applicability of rules differed by sector, job category or mode of engagement.

The need for a consolidated and modernised wage law therefore became evident. A law that could harmonise definitions, widen coverage, and reduce overlap. A law that could bring structure where there was fragmentation, standardisation where there was inconsistency, and clarity where interpretation had become complex. The Code on Wages, 2019 is designed precisely with this objective. It offers a unified framework governing wages, equality in pay, payment timelines and bonus entitlements, while ensuring that its provisions apply broadly across establishments, irrespective of sector or size.

By integrating these elements into one framework, the Code aims to make wage compliance more predictable, transparent and uniform. It reflects a shift from a scattered set of obligations to a streamlined structure suited to contemporary labour practices and a rapidly evolving economy.

2. Laws That Are Now Replaced by the Code

The Code on Wages replaces four central Acts. This is provided in Section 69 of the Code on Wages.

• The first law is the Payment of Wages Act, 1936, which controlled wage periods, timelines for payment, authorised deductions and claims.
• The second is the Minimum Wages Act, 1948, which allowed Governments to fix minimum rates of wages but only for scheduled employments.
• The third is the Payment of Bonus Act, 1965, which covered eligibility for bonus, amount of bonus, set-on and set-off, and bonus computation.
• The fourth is the Equal Remuneration Act, 1976, which required equal pay for men and women and prohibited discrimination in recruitment.

All these laws now stand repealed and replaced by a single consolidated Code.

3. Why Was This Code Needed?

There are several reasons why this code became necessary.

• One major reason was fragmentation. Wage law was spread across four different legislations, each with separate definitions, enforcement mechanisms and coverage rules. Employers often had to cross-check which Act applied depending on the nature of work, type of employee, gender, or wage level.
• Another reason was outdated coverage. The Minimum Wages Act applied only to employment listed in a Schedule, which left many modern service industries outside its scope. The Equal Remuneration Act applied only to notified employments, which meant many states never implemented it effectively. The Payment of Wages Act applied only up to certain wage limits. This led to confusion and litigation.
• A third issue was the inconsistent definitions. The word ‘wages’ had different meanings in the Payment of Wages Act, Minimum Wages Act, Bonus Act and Equal Remuneration Act. This directly affected PF, gratuity, bonus, overtime, leave encashment and other calculations because each law used a different method.

The Code resolves these problems by creating uniform definitions, universal coverage, standard timelines, and a simpler compliance structure.

4. Detailed Overview of the Code

Below are expanded and more readable explanations for each key feature of the Code.

4.1 Coverage and Applicability

4.1.1 Wide Definition of “Establishment” Covering Almost Everyone (Section 2(m))

The Code applies to any place where any industry, trade, business, manufacture or occupation is carried on. Even one worker is enough for applicability.

Under Section 2(g) of the Minimum Wages Act, only scheduled employments were covered. Under the Equal Remuneration Act, only notified establishments were covered. Now every type of establishment is included, whether commercial, professional or industrial. This is a complete shift from restricted coverage to universal application.

4.1.2 Minimum Wages Now Apply to All Employment (Sections 5-13)

A major shift under the Code is that minimum wages are no longer limited to scheduled employment. They apply to all employees in all sectors.  This is a clear shift from the Minimum Wages Act, 1948, where minimum wages could be fixed only for “scheduled employments” listed in the Act’s Schedule, as reflected in Section 2(g) and Section 3(1)(a). By removing this restriction, the Code brings every occupation and sector—industrial, commercial or service-based—within minimum wage protection.

4.2 Wage Structure and Calculation Norms

4.2.1 The Definition of “Wages” is Now Central and Uniform (Section 2(y))

This is one of the most impactful changes. Wages now mainly include basic pay, dearness allowance and retaining allowance. Everything else, such as allowances, HRA, overtime, bonus or commissions, is excluded unless the total exclusions exceed fifty per cent of total wages, in which case the excess must be added back.

The old laws used different definitions. The Minimum Wages Act included HRA in the definition of wages. The Payment of Wages Act had a much wider list in Section 2(vi). The Bonus Act used its own definition of salary or wage. The uniform definition under the Code reduces manipulation of salary structures and makes PF, gratuity, ESIC, overtime and bonus calculations more predictable.

4.2.2 Remuneration in Kind Up to 15 Per Cent of Wages is Allowed (Section 2(y))

The Code permits up to 15% of wages to be paid in kind if employees ordinarily receive such benefits.

Earlier, the Minimum Wages Act allowed payment partly in kind but only in ‘customary’ or ‘approved’ cases, and through specific notifications.

The new rule is simpler and more uniform.

4.2.3 Introduction of a National Floor Wage (Section 9)

The Code empowers the Central Government to fix a floor wage. State governments cannot fix minimum wages below this level. This is a new concept. Earlier laws had no provision for a nationwide wage baseline. This prevents states from setting arbitrarily low wage rates and creates some uniformity across India.

4.2.4 Overtime Must be Paid at Twice the Normal Rate (Section 14)

The Code requires that overtime wages be paid at not less than twice the normal rate.

Under earlier laws, double overtime mainly applied to factory workers under the Factories Act. Other sectors had different standards. Now, all employees covered by the Code receive the same overtime protection.

4.3 Payment, Deductions and Timelines

4.3.1 Uniform Rules for Payment of Wages (Sections 15-17)

The Code permits payment through cash, cheque or electronic transfer. Wage period cannot exceed one month. And monthly wages must be paid before the seventh day of the next month.

Earlier, under the Payment of Wages Act, payment deadlines varied depending on the number of employees. Factories with fewer than one thousand employees had different timelines.

The new Code simplifies this by having the same deadline for everyone.

4.3.2 Deductions Cannot Exceed Fifty Per Cent of Wages (Section 18)

Only authorised deductions can be made, and the total deductions cannot exceed half of the wages for that period.  Earlier, the Payment of Wages Act allowed deductions of up to 75% in some cases, especially when cooperative society deductions were included. This is a clear employee-friendly improvement.

4.4 Equality, Bonus and Employee Rights

4.4.1 Equal Remuneration for Men and Women (Sections 3 and 4)

The Code prohibits gender-based discrimination in wages and recruitment for the same work or work of similar nature. Further, when there is any dispute as to whether a work is of same or similar nature, the dispute must be decided by authority as may be notified by the appropriate Government.

Earlier, the Equal Remuneration Act applied only to establishments notified by the Government.  Under the Code, this protection extends to all establishments without the need for any notification.

4.4.2 Bonus Provisions Remain Similar But With Modernised Features (Sections 26-41)

The Code retains the basic structure of the Payment of Bonus Act but centralises some parts. Eligibility now depends on wage ceilings that may be notified by the appropriate Government rather than a fixed figure, such as the earlier twenty-one thousand rupees under the Bonus Act.

The minimum and maximum bonus rates remain unchanged at 8.33 per cent and 20 per cent, and the familiar set-on and set-off mechanism continues with a four-year adjustment cycle. Employers are required to pay bonus within eight months of the end of the accounting year, and the grounds for disqualification—such as fraud, riotous or violent behaviour, theft or sexual harassment—continue as before.

The Code also specifies how working days are counted for bonus purposes, including paid leave, lay-offs, and maternity leave. All branches or departments of an establishment can be treated as a single entity for bonus calculation unless separate accounts are maintained. Employers are allowed to adjust any interim, festival, or customary bonuses already paid, and they may deduct amounts for financial loss caused by employee misconduct. Additionally, the Code explicitly covers public-sector establishments that compete with private-sector undertakings, ensuring that employees in such establishments receive the same bonus entitlements.

4.4.3 Contractors Are Included Within the Definition of Employer (Section 2(l))

The Code expands the definition of employer to include contractors and sub-contractors. Earlier laws treated contractors differently depending on which Act applied. Now, wage obligations flow clearly to whoever is responsible for payment and supervision.

4.5 Compliance, Monitoring and Enforcement

4.5.1 Inspector-cum-Facilitator Replaces the Old Inspector System (Sections 51-53)

Instead of the traditional inspector-driven system, the Code introduces an inspector-cum-facilitator who is expected not only to enforce compliance but also to guide and support establishments in meeting their obligations. This marks a shift from the earlier approach found in the Equal Remuneration Act, 1976 (Section 9), the Minimum Wages Act, 1948 (Section 19), the Payment of Wages Act, 1936 (Section 14) and the Payment of Bonus Act, 1965 (Section 27), where the emphasis was largely on inspections, inquiries and prosecutions, with little focus on advisory assistance.

4.5.2 Agreements Reducing Rights are Not Allowed (Section 60)

The Code says that any agreement under which an employee gives up wages, bonus or any other benefit under the Code is void.

Earlier Acts had individual provisions for this. For example, the Payment of Wages Act provided a similar protection under Section 23. But now the rule applies across all wage-related matters.

4.5.3 The Code Overrides Other Laws (Section 61)

The Code gives its provisions clear supremacy by stating that they will override anything inconsistent in any other law, award, contract or service agreement. This is stronger and more uniform than the earlier framework because only a few of the repealed Acts, such as the Equal Remuneration Act which had an overriding clause in Section 3, carried such explicit priority, while others like the Minimum Wages Act, Payment of Wages Act and Payment of Bonus Act, did not contain a broad override of this nature.

The Code therefore removes doubts that previously arose when internal policies, settlements or appointment terms conflicted with statutory wage rules, and ensures that wage entitlements under the Code cannot be diluted by private agreements.

4.6 Claims, Penalties and Legal Processes

4.6.1 Unified Claims Mechanism With Longer Limitation Period (Sections 43-50)

Claims for unpaid wages, minimum wages, bonus and other dues can now be filed within three years. Under the Payment of Wages Act, the limitation was twelve months. Under the Minimum Wages Act, it varied. The Code brings consistency and gives employees more time to seek remedies.

4.6.2 Penalties Are Now More Rational With Compounding Allowed (Sections 52-56)

Most offences can now be settled by paying a compounding fee without going to court. Earlier, all four Acts relied heavily on criminal prosecution, resulting in longer proceedings and burdening Courts. The Code focuses more on compliance than punishment.

4.6.3 MNREGA and Coal Mines PF Act Excluded

These schemes operate under separate frameworks and remain untouched by the Code.

4.7 Important Timelines Under the Code on Wages, 2019

Topic	Timeline/Limit	Section	Notes/Clarification
Payment of Monthly Wages	On or before the 7th day of the succeeding month	Section 17(1)(iv)	Applies to all establishments; earlier varied under the Payment of Wages Act
Payment to Weekly-paid Employees	Last working day of the week	Section 17(1)(ii)	Explicit statutory obligation
Payment to Daily-paid Employees	At the End of the shift	Section 17(1)(i)	Same-day disbursement
Wage Period	Cannot exceed one month	Section 16	Employer may fix daily/weekly/fortnightly/monthly period
Overtime Wages	To be paid at twice the normal rate	Section 14	Uniform across all sectors
Minimum Wages Revision	Governments must review/revise at least once every 5 years	Section 8(4)	Mandatory periodic revision
Floor Wage Revision	Central Government to revise at intervals “as it thinks fit”	Section 9	No fixed frequency; but revision is expected periodically
Bonus Disbursement	Within 8 months of end of accounting year	Section 39(1)	Earlier under PBA: within 8 months unless extended
Set-on and Set-off Period	Carry forward for 4 accounting years	Section 36	Same as old PBA structure
Limitation for Filing Claims	3 years from date of cause of action	Section 45(6)	Uniform limitation; earlier Acts had shorter and inconsistent timelines
Notice/Display Requirements Relating to Fines	To be displayed continuously (in physical or electronic form)	Section 19	Relates to wage rates, working hours, wage period, etc, as per the Act
Appeal Against Authority’s Order	Within 90 days	Section 49	Appeal must be filed before designated Appellate Authority
Opportunity for Rectification Before Prosecution	Inspector-cum-Facilitator may give time to comply before initiating action	Section 54	–
Compounding of Offences	Within time permitted by the compounding authority	Section 56	Applies to compoundable offences only
Records and Wage Slips	To be issued/maintained as prescribed; generally monthly for wage slips	Section 50	Format to be prescribed in rules

5. Some Important Facts and Numbers of the Code on Wages, 2019

Subject/Item	Amount/Quantum	Section	Notes/Clarification
Wage Composition Rule	Allowances cannot exceed 50% of total remuneration; excess added back to wages	Section 2(y)	This is the most consequential numerical rule under the code
Remuneration in Kind	Up to 15% of wages may be paid in kind	Section 2(y)	Applies where employees ordinarily receive benefits in kind
Minimum Bonus	8.33% of wages	Section 26	Same as earlier Payment of Bonus Act
Maximum Bonus	20% of wages	Section 26	Continues from earlier law
Maximum Deductions	Cannot exceed 50% of wages	Section 18	More employee-friendly than earlier 75% allowance under POWA
Penalty	Up to ₹1,00,000	Section  54	Exact penalty varies based on nature of contravention

6. Practical Impact in Day-to-Day Operations

The Code’s uniform definition of wages under Section 2(y) has an immediate practical effect on salary structuring. Since exclusions cannot exceed fifty per cent of total remuneration, any excess must be added back to wages for statutory purposes.

For example, if an employee earns Rs. 30,000 per month with Rs. 10,000 as basic and Rs. 20,000 as allowances, the exclusion portion crosses the 50% limit (Rs. 15,000). The additional Rs. 5,000 is deemed “wages,” increasing the base for PF, gratuity and bonus calculations. This correction now flows automatically because the Code legally caps the maximum allowable exclusions.

Minimum wages now apply to all types of employment, so service-sector roles such as receptionists, retail workers, delivery staff or entry-level office positions, many of which previously fell outside the minimum wage framework, must now be paid at or above the notified rates. This results in wage upward-revision in sectors that historically faced no statutory floor.

Further, Bonus calculations will also see practical uniformity. Since eligibility now depends on Government-notified ceilings rather than a fixed historic threshold, many establishments may need to reassess who qualifies. In cases where salary restructuring increases the wage component due to the 50% rule, some employees may newly fall within the eligible wage ceiling.

The post [Analysis] The Code on Wages 2019 – Unified Framework | Key Reforms | Wage Structure appeared first on Taxmann Blog.

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Investment Planning for Retirement refers to the systematic process of allocating your savings into suitable investment options to build a sufficient financial corpus for life after you stop earning a regular income. It involves assessing future expenses, estimating the amount needed at retirement, and choosing the right mix of assets—such as equity, debt, cash, and physical assets—to help your money grow over time.

Table of Contents

1. Need for Making Investments to Reach Retirement Goals
2. Difference Between Savings and Investments
3. Asset Class and Sub-Asset Classes
4. Features of Different Asset Classes
5. Asset Class Returns

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1. Need for Making Investments to Reach Retirement Goals

The retirement goal is unique in the sense that it requires a large corpus to be built out of owned funds since it cannot be funded through loans or borrowings. The other feature of the goal is that it is long-term in nature. It has to be met at a time well in the future. If the money saved for the goal was kept unused till it is required to meet the expenses in retirement, the money will lose value given the effect of inflation over the long period to retirement. Again, keeping the money idle would mean that the ability of money to be invested and earn returns is not being used.

Consider the case of ‘X’ who requires to accumulate a corpus of Rs. 2 crores over 30 years.

If X intended to keep the savings idle, then he would require a monthly contribution of Rs. 55,555 each month for 30 years to accumulate the Rs. 2 crores.

If X invested the savings in an investment that earned 10 percent, then he would require to invest only Rs. 8,847 each month for 30 years.

Investing the money instead of keeping the savings unutilized frees up a large chunk of X’s savings for other goals and needs.

Large goals like retirement can only realistically be met if the money saved is invested.

2. Difference Between Savings and Investments

Saving refers to the excess income available to an individual or household after meeting current expenses. These are the funds available to be apportioned to future needs that are referred to as financial goals. If the individual wants to secure the savings from a loss in absolute value, then it is held in secure and guaranteed avenues such as savings bank accounts. Typically, funds that are required for meeting the near term expenses or goals, or funds earmarked for meeting emergencies are held in this form. As we have seen in the previous chapter, money left idle loses real value over time as a result of the effect of inflation and the purchasing power of savings erodes over time.

Savings are always scarce and seldom adequate to fund all the financial goals that an individual may have. It is important therefore to make most of the available savings. One way of doing this is to put the savings to work by investing it. Investing is the term used to describe the activity of employing available funds in suitable investment opportunities in physical and financial products with the intent of earning a return. The returns or gains made from investing are also then available to help meet the goals.

2.1 Trade-Off Between Risk and Return

When savings are invested to earn returns, they are exposed to certain risks, depending upon the type of investments into which the savings are channelized. The investor needs to understand these risks before committing their savings to the investment.

Risk of Liquidity – When savings are invested, they are typically locked-in for a defined period of time. Unlike cash kept in sources such as savings bank accounts, invested funds are not available readily for use by the investor. Some investment products may allow easy realisation, but there may be a penalty imposed on early withdrawal, such as the penalty of lower interest imposed on a premature withdrawal of a fixed deposit with a bank.

Risk to Expected Returns – Depending upon the avenue chosen for investment, there may be a risk of the expected return not materialising. If the investment is a debt-oriented investment, then the interest income is known at the time of investment. However, the issuer may default in paying the interest, unless it is a guaranteed product such as a post office deposit that is guaranteed by the Government of India. In case of equity investments, there is no fixed or assured dividends or returns. Investors make estimates about expected returns based on historical returns and assumptions on performance of the economy, company and other relevant factors. If the business does not do as expected the company may not declare a dividend for its shareholders at all and the price of the shares may not see the expected appreciation thus affecting the total returns from the equity investment. In case of real estate investments, the investor expects to earn a periodical rental income and appreciation in the value of the property. However, there is a possibility that a tenant may default on paying rent or the property may remain unoccupied and not earn rental income at all.

Risk to Capital Invested – Investments may involve the risk of a partial or even complete erosion of the principal invested. Investment in equity may see a fall in price to levels where there may be an erosion in the capital invested. A default by the issuer of a debenture at maturity may mean that the capital invested will be lost, unless the debt instruments are secured on the assets of the issuer. Physical investments such as real estate and gold too may see a fall in values that erodes the capital invested.

The potential for return from an investment is expected to compensate for the risk that is undertaken – higher the risk in the investment, higher is the expected return. Equity investments are expected to provide higher returns to compensate the investor for the higher risk to returns and principal. A bond with a higher credit rating will pay a lower coupon as compared to a bond of the same tenor but with a lower credit rating, to reflect the lower risk of default in payment of the periodic coupon income and repayment of principal. If an individual wants to select investments without too much risk, they must be willing to settle for lower returns. This is the risk-return trade-off in investments. The limited access to the funds invested and the risk of loss in investments are the trade-offs that are accepted for the higher returns that it is possible to earn from investments like real estate and equity. The extent of risk an individual is willing to take on for returns will vary depending upon their circumstances. For example, investors with a higher level of income and savings and greater financial security may be willing to take higher risk relative to investors without a secure source of income and lower accumulated wealth. If the goals for which the investments are being made are well in the future, then the investor may be willing to invest in products that may show volatility in returns, but has the potential to earn high returns over a period of time. On the other hand, if the goals are closer at hand and the funds are required to meet the goal, then the investor will seek to invest in low risk products that are likely to earn low returns but will preserve the capital accumulated.

When savings are invested, the returns earned on it help accumulate the funds required to meet the individual’s financial goals. For example, retirement is a goal that requires a large sum of money to be accumulated given the long years in retirement when expenses have to be met. When the savings being set aside for the retirement corpus is invested, the returns earned on the investment too contributes to the final corpus.

Consider the following example:

X wants to accumulate a corpus of Rs. One crore through monthly savings over a 25 year period. If X were to depend upon his savings alone, he would require to set aside approximately Rs. 33,000 per month. Instead, if the monthly savings were being invested at 8 percent, the savings required to reach the same sum of Rs. One crore in 25 years would be approximately Rs. 10,500.

If the money set aside is invested then the returns earned on the investment would also contribute to the corpus required, thus freeing up the savings for other goals and needs which otherwise would have had to be set aside for the retirement goal. In the above example, approximately Rs. 22,500 (Rs. 33,000 – Rs.10,500) becomes available to Mr. X each month to use for other goals because investing around
Rs. 10,500 every month and earning compounded returns on it gets him to his goal.

Higher the returns earned lower will be the savings that have to be invested. In the above example, instead of 8 percent if the savings earned 10 percent then the monthly savings required to be invested to reach the corpus would be around Rs. 7,500 instead of around Rs. 10,500. Depending upon the type of investment selected to invest the savings, there will be some degree of risk taken on by Mr. X. Monitoring the investment periodically for any change in the circumstances that may increase the risk, and moving the funds if so required, will help Mr. X manage the risks.

3. Asset Class and Sub-Asset Classes

Every investment option is characterised by the risk and return features inherent in it. The returns may be described as high or low, pre-defined or variable, stable or volatile. This would depend upon the factors that affect the returns. For example, the returns on the equity shares of a company would depend upon the profits the company makes and the business risks that the company faces. This translates into the possibility of a higher long-term return if the company’s performance is good. But in the short-term the holder of equity shares is likely to see a good amount of volatility in returns as market participants evaluate the impact of different factors on the expected performance of the company and incorporate their view into the price of the share. The returns from bonds of a company would depend on the ability to generate enough cash to pay interest, even if the company would make losses or a minimal profit. The price of the bonds reacts to changes in factors that will impact interest rates in the economy. This translates into steady periodic return from interest income with some degree of volatility in prices. A group of investments that exhibit similar risk and return characteristics, and respond in a similar fashion to economic and market events are grouped together as an asset class.

Broad Asset Classes

Investment products are primarily classified as physical assets and financial assets. Physical assets are tangible assets and include real estate, gold and other precious metals. Physical assets are typically growth investments that are bought for the appreciation in value rather than the income they generate. Physical assets are also seen as a hedge against inflation. Financial assets represent a claim that the investor has on benefits represented by the asset. Financial assets include bank deposits, equity shares, bonds and others. These assets may be structured as growth-oriented assets where the appreciation in value constitutes the primary source of returns. Equity investments are an example of growth-oriented investments. Assets may be income-oriented, such as deposits, where the periodic income such as interest is the main source of return. They may also be structured to provide liquidity and capital preservation. Financial assets are typically standardised products and controlled by the regulations in force at the point in time.

Based on the return and risk attributes, financial assets or investment options can be broadly classified into the following asset classes:

• Equity
• Debt
• Cash

Physical assets can be categorised as:

• Real Estate
• Commodities

4. Features of Different Asset Classes

Each asset class has distinctive features as regards returns, risk and liquidity.

4.1 Equity

Equity represents ownership in the company that has issued the shares to the extent of shares held. Shareholders participate in the management of the company by exercising the voting rights associated with the shares held. They also participate in the residual profits of the company i.e. the profits remaining after all the dues and claims against the company have been met. In periods of high revenues and profits, the shareholders benefit from high dividends that are paid to them and from the appreciation in the value of the shares. However, if there are no residual profits or the Board of Directors of the company do not recommend a dividend from available profits then equity shareholders do not receive a dividend. Equity shareholders cannot demand a return of the capital invested. If the shares are listed on the stock markets, then the shareholder can sell at the current value. This may be higher or lower than the value at which the investment was made.

Investment in equity is investment in a growth-oriented asset. The primary source of return to the investor is typically from the appreciation in the value of the investment. Dividends are declared by the company when there are adequate profits and provide periodic income to the shareholders. The returns from equity investments are neither pre-defined nor guaranteed. They can be volatile from one period to the next and can even be negative. This makes equity investments risky, especially in the short-term. Since the market values of shares may decline in response to company-specific or economy-wide reasons, investors may find that they have to exit at a loss. Over time, the value of well-managed and profitable companies will see appreciation and generate high returns for the investors. Selecting the right stocks, monitoring the performance of the companies and exiting stocks where the performance is not as expected, is important for success in equity investing. Listed equity shares are liquid and can be easily converted into cash by selling in the market at prevalent prices. Within equity as an asset class there can be sub-categories based on the industry to which a group of companies belong, or the size of the company based on its market capitalisation (large, mid or small). Sub-asset classes within equity may have features that are specific to that group. For example, among the universe of stocks available large-cap stocks typically feature greater stability in earnings relative to mid and small-cap stocks. They are therefore seen as less volatile in comparison to mid and small cap categories. Similarly, revenues of companies in the technology sector are sensitive to currency fluctuations since exports form a large segment of revenues, companies in interest-rate sensitive sectors such as real estate, see benefits when interest rates in the economy comes down, and so on.

4.2 Debt

Debt represents the borrowings of the issuer. The terms of the issue will determine the conditions such as the coupon or interest payable on the debt, the tenor of the borrowing after which the borrower/issuer has to return the principal to the lenders/investors, the security against the assets of the borrower offered as collateral, if any, and other terms.

Debt may be raised in the form of deposits or by issuing securities. For example, a bank may accept deposits from the public, which is a borrowing of the bank and they have an obligation to repay. A bank may also issue securities to raise debt from the public. Securities are standardised in terms of the face value of each bond, coupon payable and tenor of the security. Deposits are typically unsecured, while debt securities are secured against the assets of the borrower and therefore offer greater protection to the holder of the security. Deposit holders can exit the investment only at the end of term of the deposit. Pre-mature withdrawal may imply a penalty in the form of lower interest on the deposit. Securities issued through a public issue have to be mandatorily listed. Investors can exit by selling the security on the stock exchanges. The price at which they sell may be higher or lower than the price at which they bought the debt security. A higher price implies capital gains, which adds to the total returns of the debt security holder.

Debt as an asset class represents an income-oriented asset. The major source of return from a debt instrument is regular income in the form of interest. The interest is typically known at the time of issue and may be guaranteed either by an undertaking of the government or by security created on the physical assets of the issuer. Some debt instruments may be unsecured, in which case it is seen as riskier. Debt is issued for a specific tenor or term after which it is redeemed and the principal returned to the investor. Debt securities, such as bonds and debentures, may be listed on the stock markets. Such bonds may see an appreciation or depreciation in its value. The total returns to the investor in such securities will be from the interest income and the gain or loss in its value. The price of debt securities reacts to interest rate levels in the economy and this brings some volatility in the total returns from debt securities. Risk in debt securities primarily comes from the possibility of default by the issuer in paying interest and/or repaying the principal. Liquidity in debt instruments is low, even when they are listed. Most debt-oriented instruments impose a penalty if the funds are withdrawn before the committed time. Sub-categories within debt may be created based on the credit risk associated with the instruments (Government securities or corporate securities), or the tenor (short or long-term) of the securities.

4.3 Cash and Its Equivalents

Cash and its equivalents are investments used for parking funds for a short period of time and earning a nominal return. The objective of investments made in such assets is preserving the absolute value of the capital invested and high liquidity rather than earning returns. Cash and equivalent assets have the highest liquidity. Other products that meet these specifications include savings bank accounts and money market mutual funds, among others.

4.4 Physical Assets

Physical assets are tangible assets and include real estate, gold and other commodities. Changes in the value of physical assets are impacted by demand and supply. The return from physical assets is primarily in the form of the appreciation in value rather than the income they generate. Some such as real estate may provide both income and growth, while others such as gold are pure growth-oriented assets. The value of physical assets is seen to move in tandem with inflationary trends, and as such they may be able to generate inflation-protected returns. The primary risks in physical assets are from the illiquidity that some, such as real estate, suffer from. It is not easy to be able to sell a property quickly at what is perceived as the right price. Real estate also suffers from opacity in valuation and transactions, apart from legal and maintenance issues. The other limitation of physical assets as an investment is that they are typically large ticket investments and require substantial savings, or a combination of savings and loan to acquire the asset.

5. Asset Class Returns

The nature of returns earned from different asset classes is likely to be different. This difference makes each asset class suitable to cater to a different need of the investor. Some asset classes may cater to the need for growth, others may cater to the need for income, and still others may cater to the need for liquidity. The return from an asset class may be evaluated on the basis of these questions:

• What constitutes returns from the investment – periodic income, capital appreciation or a combination of the two?
  • If it is a combination of the two, which component is the primary contributor?
• Are the returns from the investment known in advance? Is it fixed? Is it guaranteed?
• Will the returns vary from one period to the next?
  • How much do the returns vary, if they do?

The return earned from an asset class may be in the form of periodic income such as dividend, interest and rent. The periodic income may be known at the time of investment. For example, an investor buying a bond or investing in a fixed deposit knows the coupon rate or interest rate they are going to receive. Investors in equity shares do not know the dividend they may receive. They may even not receive dividend income in a year. The interest income remains the same throughout the life of the debt instrument. There are a few debt securities that offer interest that vary with market rates. In the case of dividend income, the rate of dividend goes up when the company’s revenues and profits go up and may go down when profits are low. Some interest income may be guaranteed. For example, any investment made in government securities, small savings schemes and post office deposits, among others are guaranteed by the Government of India. Some interest income may be secured against the assets of the company. If the issuer fails to pay the interest income, then the holder of security has the right to the asset to the extent of their dues.

The return from an asset class may be in the form of appreciation in the value of the investment. Equity shares, debt securities, real estate properties are all capable of earning an appreciation in its value. In case of equity shares, this component of returns is typically the primary source of return and it may see frequent changes since share values are reported on the stock markets on each trading day. Debt securities see a change in value with changes in interest rates in the economy. But the gains constitute a smaller portion of the returns, especially for debt securities. In real estate investments too, the appreciation in value is a significant portion of the total return. However, the change in values are not frequent. An asset such as gold provides no periodic income and appreciation is the only source of income.

Asset values can see a depreciation instead of an appreciation, and this will bring down the returns and can even make it negative. For example, if a bond pays 8 percent per annum coupon interest but the price falls by 10 percent in the year then the total return from the bond is -2 percent (8 percent +(-10 percent)).

Following is the list of generally used asset classes and their main features:

Asset Classes	Risk	Returns	Liquidity
Cash	Risk of inadequate returns (inflation risk).	Periodic interest income. Low returns commensurate with the low risk.	High liquidity. Can be withdrawn at any time with no cost or penalty.
Bonds	Corporate bonds have the risk of default by the issuer. Investments in debt instruments are subject to inadequate returns (inflation risk), fall in value (interest rate risk) and reinvestment risk.	Bonds provide fixed return in the form of coupon/interest income. They also have the potential to gain in value if there is a fall in interest rates and the risk of loss in capital value if interest rates rise (interest rate risk).	Liquidity in debt instruments is low. There may be a lock-in, penalty for early withdrawal or low trading in the stock markets, all of which make these instruments low on liquidity.
Stocks	Stock prices are volatile (market risk) and hence seen to be a risky investment unless the investment horizon is long enough to provide the opportunity for appreciation in the value of profitable businesses. It is important to select the right stocks (selection risks) for investment.	Returns from equity is primarily from the appreciation in value of the stock along with the dividend that the company may declare. The fall in the value of the stock may result in loss to the investor.	Listed equity investments can be easily sold at the current price, which makes them liquid.
Real estate	Liquidity risk is the primary risk faced in real estate investments. Moreover, it cannot be sold in smaller units if so required. Lack of transparency in pricing and transactions and weak regulatory protection are among the biggest risk that real estate faces. Managing the property and legal issues are other risks that real estate investors face. The returns are impacted by economic cycles.	Return from real estate is both from the rental income as well as the appreciation in value. The returns from real estate are seen as a hedge against inflation.	Liquidating real estate investments is a long and cumbersome process. Lack of transparency in the pricing of real estate investments makes the process complicated.
Gold	The primary risk in gold is from the volatility in prices driven by speculative forces.	Returns from gold is only from the appreciation in price	Liquidity is high in gold and gold linked securities

5.1 Total Returns from an Asset Class

Asset class returns may be from a combination of periodic income such as interest or dividend or rent and the appreciation in the value of the investment made. This is the total return from the investment.

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Case Details: Virgin Atlantic Airways Ltd. vs. Deputy Commissioner of Income-tax, International Taxation [2025] 180 taxmann.com 794 (Delhi-Trib.)

Judiciary and Counsel Details

• Vikas Awasthy, Judicial Member & Avdhesh Kumar Mishra, Accountant Member
• Nagesh Kumar Behl, Adv. & Amit Khurana, Chartered Accountant for the Appellant.
• M.S. Nethrapal, CIT(DR) for the Respondent.

Facts of the Case

Assessee, a UK tax resident airline, had a branch office in India. It was engaged in the business of transporting passengers, mail, livestock, and goods by air in International Traffic. The assessee received delivery order charges.

The Assessing Officer (AO) held that delivery order charges were taxable in India, as they constituted income derived from an activity after the transportation of goods in international traffic. The aggrieved assessee filed the instant appeal before the Tribunal.

ITAT Held

The Delhi Tribunal held that the income of the assessee from the operation of aircraft in international traffic was not subject to tax in India in light of the provisions of Article 8 of the India-UK DTAA. Clause (3) of Article 8 defines the term “Operation of Aircraft”. The expression “operation of aircraft” not only includes the transportation by air of persons, livestock, goods, or mail, but also includes the sale of tickets for such transportation, the incidental lease of aircraft on a charter basis, and any other activity directly connected with such transportation.

The activity of the delivery of goods carried out by the assessee is inextricably linked to the main activity of transportation by air of goods or mail, etc., as the assessee was complying with delivery orders directly connected with the transportation of goods/mail, etc., in international traffic.

Thus, in the facts of the case and in light of the provisions of Article 8(3) of the India-UK DTAA, the delivery order charges received by the assessee would not be taxable in India.

List of Cases Reviewed

• Turkish Airline Inc. v. ACIT [IT Appeal no. 3776(Delhi) of 2023, dated 26-3-2025] (para 8) followed

List of Cases Referred to

• Turkish Airline Inc. v. ACIT [IT Appeal no. 3776(Delhi) of 2023, dated 26-3-2025] (para 3).

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Case Details: Greater Visakhapatnam Smart City Corporation Ltd., In re [2025] 180 taxmann.com 454 (AAR-ANDHRA PRADESH)

Judiciary and Counsel Details

• K. Ravi Sankar & B. Lakshmi Narayana, Member
• M. Ravi Teja, CA for the Applicant.

Facts of the Case

The applicant, a special purpose vehicle of the State Government and a municipal corporation, implemented a sewerage and recycled water project under a tripartite arrangement with the Greater Visakhapatnam Municipal Corporation (GVMC) and Hindustan Petroleum Corporation Limited (HPCL), wherein recycled water was supplied to HPCL and its quantity was measured through flow meters installed at the end-user premises. The applicant sought an advance ruling from the Authority for Advance Ruling (AAR) on whether the maintenance charges of such flow meters formed part of a composite supply with the supply of recycled water and, if not, the applicable rate of tax. The applicant submitted that the maintenance of the flow meters installed at HPCL’s premises, used solely to record recycled water, required classification independent of the principal supply of water. The matter was accordingly placed before the AAR.

AAR Held

The AAR held that the maintenance of flow meters constituted a standalone supply of service and did not form part of any composite supply linked to the supply of recycled water. The AAR observed that the activity fell under Heading 9987 as an independent maintenance service and was taxable at 18 percent in terms of “Notification No. 11/2017-Central Tax (Rate), dated 28-06-2017” as amended. The AAR further held that the maintenance activity was to be assessed as a standalone supply in accordance with the classification entry applicable to maintenance services. The ruling was issued in favour of the revenue.

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The Digital Personal Data Protection Act 2023 (DPDP Act) and the Right to Information Act 2005 (RTI Act) represent two core pillars of democratic governance—privacy and transparency. While the RTI Act promotes openness by enabling citizens to access government-held information, the DPDP Act strengthens individual privacy in the digital age. Their intersection has renewed debates on how to balance personal data protection with the public’s right to know, especially after the DPDP Act amended Section 8(1)(j) of the RTI Act.

Table of Contents

1. Introduction
2. Constitutional and Historical Foundations of the Two Rights
3. The Statutory Conflict – Dismantling Section 8(1)(j)
4. Judicial Guidance and Why Section 8(2) Cannot Replace the Old Safeguard
5. How the DPDP Act’s Architecture Increases State Power and Reduces Oversight
6. Which Law Should Prevail? A Constitutional Inquiry
7. Pathways to Harmonisation – Recommendations
8. Conclusion – Protecting Both Pillars of Democracy

1. Introduction

In modern democratic governance, two foundational principles stand in perpetual tension – the citizen’s right to access information about the State, and the individual’s right to privacy. India institutionalised the former through the Right to Information Act, 2005 (RTI Act), which transformed civic engagement by guaranteeing unprecedented access to governmental records. Twelve years later, the Supreme Court’s landmark decision in K.S. Puttaswamy v. Union of India [2017] 88 taxmann.com 176. recognised the right to privacy as a fundamental right intrinsic to dignity, autonomy, and personal liberty. This constitutional affirmation triggered India’s legislative journey toward a comprehensive privacy regime, culminating in the Digital Personal Data Protection Act, 2023 (DPDP Act).

However, while the DPDP Act was envisioned as a rights-protective legal framework, it also reached back to reshape the structure of transparency, amending Section 8(1)(j) of the RTI Act through Section 44(3) of the new law. This amendment, seemingly technical, has fundamentally altered the process of balancing privacy and public interest. The result is a statutory collision – two equally important rights derived from the Constitution now appear to undermine each other, not through their inherent content, but through the manner in which the legislature recalibrated the mechanisms of disclosure.

This write-up provides a definitive analysis of this conflict. It explores the historical and constitutional roots of both rights, dissects the statutory amendments, examines judicial precedents, and evaluates the broader implications for governance, accountability, and democratic oversight. The chapter concludes by proposing a principled route to harmonisation, a solution that protects privacy without eroding the transparency essential to a functioning democracy.

2. Constitutional and Historical Foundations of the Two Rights

2.1 The Rise of Transparency – RTI and Article 19(1)(a)

India’s right to information grew out of sustained grassroots pressure rather than top-down reform. In the 1990s, the Mazdoor Kisan Shakti Sangathan (MKSS) movement rallied rural communities to seek access to expenditure records, wage registers and project documents. This push for transparency helped shape the broader momentum that eventually informed early legislative efforts, including the Freedom of Information initiatives of the late 1990s and the emergence of state-level RTI laws in states such as Tamil Nadu, Goa and Madhya Pradesh.

Judicial interpretation strengthened this movement. Courts consistently recognised that the right to information is embedded in the freedom of speech and expression under Article 19(1)(a). Citizens cannot meaningfully participate in democracy unless they know how the government functions, how it spends public money, and how decisions are made. The RTI Act, enacted in 2005, operationalised this constitutional guarantee. It created the presumption that disclosure is the rule and exemptions the exception. Section 8 of the Act provided narrowly tailored exemptions, including protection of personal information, but always conditioned such exemptions on the broader public interest.

By design, the RTI Act was a transparency-first statute. It is assumed that sunlight is the best disinfectant and that public scrutiny is the default mechanism of accountability.

2.2 Constitutionalisation of Privacy – Puttaswamy and Article 21

The right to privacy developed more slowly and subtly. Earlier decisions recognised zones of personal liberty but stopped short of declaring privacy an independent fundamental right. That changed in 2017 with the nine-judge bench judgment in Justice K.S. Puttaswamy v. Union of India [2018] 97 taxmann.com 585 (SC). The Court unanimously affirmed the right to privacy as intrinsic to Article 21’s guarantee of life and personal liberty. The judgment emphasised autonomy, dignity, informational self-determination, and the necessity for data protection.

Crucially, Puttaswamy introduced the proportionality doctrine. The State may restrict privacy only if:

• The restriction is backed by law,
• It pursues a legitimate aim, and
• It is proportionate to the objective, meaning the least intrusive measure must be adopted.

The decision laid down an explicit constitutional mandate for comprehensive data protection legislation. This led to the Justice B.N. Srikrishna Committee report in 2018 and ultimately to the enactment of the DPDP Act, 2023.

2.3 The Structural Clash Between Articles 19(1)(a) and 21

Both RTI and privacy are constitutionally derived. Neither occupies a superior position. The right to know facilitates democratic participation, while the right to privacy safeguards dignity and autonomy. The challenge lies in harmonising these rights without diluting either of them. That challenge is precisely where the DPDP Act’s amendment to the RTI Act becomes crucial and controversial.

3. The Statutory Conflict – Dismantling Section 8(1)(j)

3.1 What the Original RTI Framework Provided?

Section 3 of the RTI Act granted citizens an enforceable right to access governmental information. Section 8(1)(j), dealing with personal information, was designed as a qualified exemption. It allowed PIOs to deny access to personal information only when:

1. The information had no relationship to a public activity or interest, or
2. Disclosure would cause an unwarranted invasion of privacy,

unless the PIO determined that the larger public interest justified disclosure.

This structure mandated a three-part balancing test. Importantly, the burden was not on the citizen. The PIO bore the legal duty to weigh privacy against public interest. This built-in safeguard became central to transparency, ensuring that personal information of public officials, salaries, assets, service records, remained accessible when relevant to accountability.

3.2 What the DPDP Amendment Did to RTI Act?

Section 44(3) of the DPDP Act replaced the detailed, nuanced text of Section 8(1)(j) with a minimalist phrase:

“information which relates to personal information.”

The amendment eliminated:

• The requirement to assess connection to public activity,
• The requirement to evaluate unwarranted invasion, and
• The mandatory public interest override.

This was not a mere stylistic revision; it was a structural transformation. The amended clause converts a carefully balanced exemption into a blanket restriction. The constitutional obligation to weigh competing rights at the point of decision-making has vanished.

3.3 Why the New Framework Pushes PIOs Toward Denial?

The DPDP Act imposes penalties up to ₹250 crore on data fiduciaries, including public authorities, for violating its provisions. Faced with severe consequences and given a broadly worded exemption (“personal information”), PIOs are now structurally incentivised to deny almost any request that touches upon personal data. Given that nearly every government record contains at least some personal details, denial becomes the safe default.

Information historically used to expose corruption or maladministration, MLA expenditure records, beneficiary lists, attendance registers, and asset disclosures can now be withheld simply by invoking “personal information.”

This is not an incremental change; it represents a fundamental recalibration of transparency.

4. Judicial Guidance and Why Section 8(2) Cannot Replace the Old Safeguard

4.1 How Courts Previously Balanced Privacy and Public Interest?

Before the amendment, courts frequently engaged with Section 8(1)(j)’s public interest proviso.

In Girish Ramchandra Deshpande v. CIC (2012) 25 taxmann.com 525 (SC), the Supreme Court held that service records and asset details of public servants are ordinarily private but may be disclosed if the requester establishes a compelling public interest. The decision reaffirmed the statutory duty of the PIO to perform the balancing exercise.

In Subhash Chandra Agarwal (2019), involving disclosure of judges’ assets and judicial appointment correspondence, the Court again relied on the balancing framework of Section 8(1)(j). It emphasised that transparency and privacy must both be preserved through meticulous, case-specific proportionality analysis.

These cases rested on the presumption, encoded in law, that the balancing exercise was mandatory.

4.2 Government’s Argument that Section 8(2) Covers the Gap

The government argues that the amendment does not undermine transparency because Section 8(2) allows disclosure despite any exemption when public interest outweighs harm. The Union Minister and Attorney General maintain that Section 8(2) subsumes the old proviso and continues to protect the public’s right to know.

4.3 Why Section 8(2) Fails as a Practical Safeguard?

This argument overlooks structural realities.

• Section 8(1)(j)’s proviso required PIOs to weigh interests during the initial evaluation. After the amendment, PIOs can deny requests immediately without undertaking any balancing exercise.
• Section 8(2) operates only at later appellate stages, placing the burden on citizens instead of the authority.
• Severe DPDP penalties intensify risk aversion, making a Public Information Officer (PIO) highly unlikely to rely on the Section 8(2) override.
• The removal of the proviso signals a legislative preference for privacy over transparency in personal data cases.

Thus, Section 8(2) cannot compensate for the structural vacuum created by the removal of the balancing mandate.

5. How the DPDP Act’s Architecture Increases State Power and Reduces Oversight

5.1. Broad Definition of Personal Data and Its Impact on RTI

The DPDP Act defines personal data expansively to include any data linked to an identifiable individual, names, contact details, addresses, identifiers, and even digitised non-digital records. With such a wide ambit, almost every government file can arguably be shielded under “personal information.”

5.2. Deemed Consent for State Functions

Section 7(c) allows the State and its instrumentalities to process personal data without consent for any function under law. This grants broad data-processing power to the State while citizens are simultaneously deprived of the ability to scrutinise how such data is used.

5.3. Blanket State Exemptions Under Section 17(2)

The Act empowers the Central Government to exempt selected state instrumentalities entirely from its provisions for reasons such as sovereignty and security. Such exemptions can place intelligence agencies, enforcement bodies, and other powerful institutions outside the purview of the privacy safeguards, while the RTI mechanism to oversee them becomes weaker.

5.4. How These Features Create an Accountability Imbalance?

The cumulative effect is troubling:

• State power to collect, retain, and process data expands,
• While citizen power to question and scrutinise shrinks.

This imbalance undermines the proportionality requirement set out in Puttaswamy, which demands that any restriction on fundamental rights be narrowly tailored and accompanied by procedural safeguards.

6. Which Law Should Prevail? A Constitutional Inquiry

6.1 Why Statutory Interpretation Alone Cannot Resolve the Clash?

Both Acts are special statutes within their domain. The DPDP Act is special regarding personal data protection; the RTI Act is special regarding access to information. Therefore, the principle does not conclusively resolve the conflict. Instead, both must coexist in a manner that allows each to function within its constitutional territory.

6.2 Why Neither Privacy nor RTI Can Automatically Override the Other?

Privacy derives from Article 21; access to information flows from Article 19(1)(a). Neither right constitutionally trumps the other. The doctrine of Harmonious Construction requires the judiciary to interpret the statutes in a manner that preserves both rights.

6.3 A Constitutional Method for Harmonising Both Rights

The DPDP Act should prevail in defining privacy rights and permissible processing. But the RTI Act must prevail in deciding when public interest justifies disclosure. This demands a procedural mechanism, which the amendment removed. Therefore, true harmonisation requires restoring the balancing test within the RTI framework.

7. Pathways to Harmonisation – Recommendations

7.1 Restoring the Public Interest Override in RTI

Reintroducing an explicit public interest override in Section 8(1)(j) is the most important corrective step. The new proviso should be aligned with the Puttaswamy proportionality test, ensuring:

• Legality,
• Legitimate aim,
• Necessity, and
• Least intrusive means.

Without this safeguard, transparency will erode steadily.

7.2 Clarifying “Personal Information” to Protect Accountability

The DPDP Rules or government guidance should clarify that:

• Information related to public servants’ official functions, salaries, and assets relates to public activity and cannot be withheld merely because it identifies an individual.
• Redaction must be the default technique for protecting private details rather than denying entire records.

7.3 Institutional Coordination Between DPBI and CIC

Joint guidelines are essential to:

• Clarify how PIOs must apply Section 8(2),
• Safeguard officials acting in good faith, and
• Prevent overbroad denials caused by fear of DPDP penalties.

7.4 Judicial Review as the Final Arbiter

Ultimately, the courts may need to review whether the amendment to Section 8(1)(j) disproportionately infringes Article 19(1)(a). Judicial interpretation may restore the balancing test as a constitutional requirement.

8. Conclusion – Protecting Both Pillars of Democracy

The DPDP Act is a landmark in the evolution of data protection in India, fulfilling the constitutional mandate of Puttaswamy. Yet, its interface with the RTI Act has created a structural tension that threatens transparency. By removing the explicit balancing test from Section 8(1)(j), the Act has inadvertently tipped the scales in favour of opacity. This shift compromises accountability, undermines public oversight, and risks transforming the RTI Act from a right-to-know statute into a right-to-deny framework.

A democracy cannot function when privacy becomes a shield for governmental opacity. Nor can it thrive if transparency disregards legitimate privacy concerns. The constitutional promise demands a careful, structured harmonisation.

Restoring a robust public interest override is essential, not as a concession to one right over another, but as a mechanism for preserving both. Transparency and privacy are pillars that must stand together. Neglecting one destabilises the entire democratic architecture.

This analysis argues for recalibration, not confrontation. India must reaffirm its commitment to both rights by restoring the structural safeguards that ensure governance remains accountable, citizens remain empowered, and privacy remains protected.

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